It is very important to remember that factors such as economic growth, inflation and dividend yields help determine stock returns for the overall stock market over many years. Specific companies can—and frequently will—experience operational growth that’s far above or far below the level of national economic growth. For example, Costco has grown much faster than most companies for a long while, whereas Sears hasn’t kept up with other companies for decades. Put differently, the above three components of our stock investing “stream” will do a better job of explaining future long-term returns for the S&P 500 than for specific stocks or focused portfolios of, say, two or three dozen companies. Combining and reiterating the points in this discussion, we feel that investors in an S&P 500 index fund, for example, should expect lower than historically-average returns in the coming 10-year period. ( As always, it is not possible to guarantee future returns.) Investors who want to pursue returns closer to historical stock market averages will need to look elsewhere or to be successfully selective in their stock investments.
Aug 2016